smsf generations report - macquarie bank

SMSF Generations Report Macquarie SPAA 2012

1. ATO, Self Managed Super Fund Statistical Report; Macquarie Bank Limited data. Correct as at March 2012.

2. APRA, Quarterly Superannuation Performance, March 2012.

3. Deloitte Actuaries & Consultants, Dynamics of the Australian Superannuation System, November 2011.

The Macquarie Cash Management Account (Macquarie CMA) is a deposit account provided by Macquarie Bank Limited ABN 46 008 583 542 (Macquarie). Fees and charges may be payable. Terms and conditions are available upon request.

Macquarie Group Limited is regulated by Australian Prudential Regulation Authority (APRA), the Australian banking regulator, as the non-operating holding company of an Australian bank (Macquarie, a wholly owned subsidiary of Macquarie Group Limited). As a licensed Australian bank, Macquarie is subject to regulation by APRA. Macquarie also holds Australian Financial Services Licence No. 237502 and is subject to regulation by the Australian Securities and Investments Commission.

Any subsidiary mentioned in this report is not an authorised deposit-taking institution for the purposes of the Banking Act (Cth) 1959, and their obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542. Macquarie Bank Limited does not guarantee or otherwise provide assurance in respect of the obligations of any of the subsidiaries mentioned in this report.

This information is provided for the user of licensed financial advisers only. In no circumstances is it to be used by a person for the purpose of making a decision about a financial product or class of financial products.

This information has been prepared by members of the Macquarie Group and does not take into account your objectives, financial situation or needs. Before acting on this information you should consider whether it is appropriate to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

The material contained in this report is based on information obtained from the Mood, Life and Money – Macquarie Insights survey undertaken in September 2011. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this material and/or further communication in relation to this material.

1

Contents

Introduction 02Methodology 02

A snapshot of SMSFs today 03The SMSF sector at a glance 03

Choice and control drive sector growth 04

A generational snapshot 05Talking about the generations 05

The typical SMSF investor 05

Tailoring your business model 06

Generation Y 07 Gen Y settles down 07

Fearless and optimistic — but not fulfilled 08

The less confident generation – fewer assets, lower incomes 09

A focus on equities 09

Deciding for themselves 10

Receptive to advice 10

Generation X 12Time poor but happy 12

A focus on family 13

Accumulation mode - high incomes and a growing asset base 13

Diversifying into property 15

Scepticism towards advisers 16

Buying time 16

Baby Boomers 17Slowing down, but still stressed 17

Ready to relax — but not yet 18

Many are wealthy — but some are less prepared 19

Becoming more defensive 19

Increasingly seeking advice 20

Looking for direction 20

The Silent Generation 22Relaxed and comfortable 22

Worried for the world 23

The millionaire generation – high assets, lower incomes 24

A preference for equities 26

Highly likely to seek advice on retirement planning 26

Lifestages of an SMSF 29 Stage 1: The investment decision 29

Stage 2: Start up 30

Stage 3: Accumulation 31

Stage 4: Retirement 32

How are SMSF investors transacting? 33

Conclusion 34

2

Introduction

While self managed super funds (SMSFs) are popular with every generation of Australians, there are significant differences in the attitudes, investment priorities and lifestyle aspirations of each age group, with important implications for investors and SMSF professionals alike.

Welcome to the SMSF Generations Report from Macquarie and the SMSF Professionals’ Association of Australia Limited (SPAA).

Already the largest sector of the Australian super industry, SMSFs are likely to continue growing in popularity and scale. As a result, SMSFs will play an increasingly central part in financial advice and accounting practices for years to come.

While much has been written about the technicalities of setting up and running an SMSF, less is known about the investors behind the funds — their attitudes, priorities and aspirations. This report considers those characteristics in detail, from a distinct, generational perspective.

Macquarie and SPAA are uniquely positioned to provide insights into SMSF investors. One in four Australian SMSFs use a Macquarie Cash Management Account (CMA) as its central cash hub, and a quarter of those SMSF clients also invest through Macquarie Wrap1. Meanwhile, through Macquarie’s long-running relationship with SPAA, we have a deep understanding of the issues and dilemmas advisers and accountants face in servicing the needs of SMSF clients.

In this report we have combined that understanding with our client insights to create concise, actionable guidelines for advisers and accountants seeking to attract, retain and communicate effectively with SMSF investors.

Why have we taken a generational approach? Because our research and our own experience show that investors in each generation have widely differing financial resources and a unique generational viewpoint which colours their approach to financial decision making and their receptiveness to financial advice.

As a result, SMSF professionals can significantly increase the likelihood of attracting and retaining clients from different generations by tailoring their communications and reshaping their offering to match the unique perspectives of each segment.

We hope you find this report of value.

Sincerely,

Carolyn Colley Andrea SlatteryExecutive Director CEO Macquarie Adviser Services SMSF Professionals’ Association of Australia

MethodologyThis report draws on four main sources:

■■ Mood, Life and Money – Macquarie Insights – a comprehensive research study and investigation into Australians’ life and financial decision-making, as well as general mood and reasons for it. The study was conducted in September 2011 and involved a large-scale qualitative research program of 12 group discussions across the nation prior to a detailed online survey of 1,600 respondents

■■ Investment Trends, April 2012 SMSF Investor Report – a survey of 2,132 SMSF investors carried out between March and April 2012, with additional analysis commissioned by Macquarie

■■ aggregated data from Macquarie Cash Management Accounts

■■ aggregated data from Macquarie Wrap.

Unless otherwise indicated, all of the findings in this report are based on Macquarie’s research.

3

A snapshot of SMSFs today

SMSFs are the fastest growing sector of the Australian superannuation industry, accounting for three dollars in every ten invested in super today.

In the past year, the SMSF sector has continued its seemingly unstoppable growth, cementing its place as both the largest and fastest growing segment of the Australian super industry. In March 2012, according to APRA2, there were 468,000 SMSFs managing $416 billion in assets, more than any other form of super. During the year to March, the sector grew by 33,000 funds. And it is projected to grow even further.

Deloitte estimates that Australian SMSF assets will grow to $2 trillion by 20303. Similarly, Macquarie research shows that only 9% of Australians surveyed have established an SMSF, with a further 14% either likely to do so in the future, or are in the process of doing so now.

While there is no such thing as a typical SMSF investor, much of the growth is being driven by young and mid-life families or new business owners from Generations X and Y. With those generations still in the process of settling down and establishing families, the trend towards self managed super is unlikely to slow in the near future.

While only 9% of Australians surveyed have established an SMSF, a further 14% are either likely to do so in the future, or are in the process of doing so now.

7.6%468,133 in March 2012 since March 2011

average assets per member in 2009/10

Projected to reachby 2030. In April 2012, the average SMSF balance reached $1 million

$416bn Total assets in March 2012

Sources: Australian Taxation Office, Deloitte, Investment Trends

Source: Australian Taxation Office

$466,909

$2 trillion

844,525 SMSF members in March 2012

Source: Australian Taxation Office

NUMBER OF FUNDS

ASSETS

MEMBERS

The SMSF sector - at a glance

4

SMSF assets are projected to reach $2 trillion by 2030

$ b

illio

ns

0

500

1,000

1,500

2,000

2,500

1997 2009 2021 2030

30 June 2010

30 June 2009

30 June 2008

Historical data (APRA)

Projected assets (Deloitte)

Corporate Industry

Public sector Retail Self-managed funds

Source: APRA & Deloitte Actuaries & Consultants, 20113

Business owners and families are key drivers of SMSF growth

Who is likely to set up an SMSF now or in the future?

Likely in future In process now

17

19

16

16

18

21

20

17

29

3

5

5

4

4

4

6

5

4

0 5 10 15 20 25 30 35

<30 years

30-39 years

White collar professional

Highly educated

Young couple no children

Young family pre school

Middle family school aged

Recently been to university

Recently set up business

%

Asked why they chose an SMSF, investors overwhelmingly said control over investment decisions and choice of investments were the most important factors.

Choice and control drive sector growthAccording to Investment Trends, current SMSF investors estimate returns over the 12 months to April 2012 at an average of 7% (self-assessed). If accurate, that compares favourably with the returns reported by APRA for corporate super funds (1.6%), industry super funds (1.4%) and retail funds (-0.3%) over a similar period for the year to March 20122.

Asked why they chose an SMSF, investors overwhelmingly said control over investment decisions (45%) and choice of investments (32%) were the most important factors, cited by SMSF investors surveyed. Many have also chosen to switch to an SMSF so they can more easily increase their exposure to a particular asset class, including shares and private equity (18%), property and geared property (7%) and cash (6%).

According to Investment Trends, the last five years have seen a steady increase in the proportion of SMSF assets held in direct shares (up from 35% to 41% between May 2007 and April 2012) and a corresponding decline in managed fund holdings (down from 11% to 6%). Cash holdings have also risen significantly, from 13% to 28%, as the flight to certainty gathers momentum. Investment Trends estimates that there is currently around $50 billion in excess cash held by Australian SMSFs — cash that would normally be invested in other assets if not for the recent market volatility.

Many have chosen to switch to an SMSF so they can more easily increase their exposure to a particular asset class, including shares and private equity (18%), property and geared property (7%) and cash (6%).

While the overall allocation to cash has increased, it is also interesting to note that many SMSF investors, particularly Baby Boomers and Gen X, are keeping more cash available ‘at call’ in their cash hub than they did before the GFC, as the following analysis of Macquarie Cash Management Accounts illustrates.

Post-GFC: Baby Boomers and Gen X holding more cash ‘at call’

020406080

100

$ th

ous

and

s

120

Gen Y Gen X

April 2006 April 2012

Baby Boomer

SilentGeneration

* Based on Macquarie Cash Management Account and Macquarie Cash Management Trust data.

Source: Macquarie Bank

5

A generational snapshot

Talking about the generations

The typical SMSF investorWhile there is no such thing as a typical SMSF investor, Macquarie’s research has highlighted there are consistent themes across the four generational groups.

Generation Y

The youngest generation of SMSF investors:

■■ are the generation most likely to get married, start a family or get a home loan within the next year

■■ are afraid of running out of time to do the things they want to do, and of not being able to afford a house

■■ have higher average SMSF balances than Gen X investors — but also a higher proportion of low-value funds

■■ are generally highly confident, except when it comes to financial decisions

■■ have a high allocation to direct equities

■■ are very receptive to advice, but currently don’t seek it.

Generation X

This generation of SMSF investors:

■■ are generally income rich but extremely time poor

■■ find life challenging and stressful, but enjoyable

■■ fear for their families future

■■ typically have more widely diversified portfolios than the other generations, with a higher allocation to property

■■ are sceptical about advisers, but willing to pay for advice in certain situations — particularly if it helps save time.

This report considers four generations of SMSF investors:

■■ Generation Y – the technology whiz kids, starting to focus on building their life and careers

■■ Generation X – born in the 60s and 70s, many are now bringing up their own children

■■ Baby Boomers – born in the post-war period, reached adulthood in the 60s and 70s and are now approaching retirement

■■ Silent Generation – born before and during the Second World War, now in retirement

The GeneRATIonS AT A GLAnce

Generation Born Age in 2012

Average SMSF balance (all members surveyed) April 2012*

Average cash balance (Macquarie cMA) April 2012^

Average annual contributions12 months to April

2012*

have an adviser†

Generation Y 1978 onwards 18–33 $510,000* $56,521 $19,000 20%

Generation X 1965–1978 34–47 $500,000 $67,014 $32,000 24%

Baby Boomers 1946–1964 48–65 $1.03m $106,138 $53,000 44%

Silent Generation Before 1946 66 and up $1.21m $91,196 $36,000 55%

* Investment Trends, April 2012 Self Managed Super Fund: Investor Report, additional analysis commissioned by Macquarie. Please note that Generation Y is based on a small sample of 38 respondents.

^ Macquarie Bank. Based on Macquarie Cash Management Account data.

† Mood, Life and Money – Macquarie Insights.

6

Baby Boomers

SMSF investors from the Boomer generation:

■■ have been badly impacted by the GFC

■■ are very concerned they will not have enough to retire on

■■ have an average SMSF balance of more than $1 million, but with a high level of variation between funds

■■ have changed their asset mix by taking a more defensive stance

■■ are increasingly seeking advice.

Silent Generation

The elder SMSF investors have a few surprises. They:

■■ take an active interest in their super, even in retirement

■■ typically have a high allocation to direct equities

■■ are the generation most likely to use online trading next year

■■ are significant users of social media

■■ have by far the largest SMSF balances

■■ are by far the most likely generation to seek advice.

TAILoRInG YouR BuSIneSS ModeL

Generation The business case Remuneration and product options communication

Generation Y ■■ Deloitte forecasts that Generations X and Y will hold 84% of all super assets by 20303

■■ More open to advice than other generations.

■■ 50% prefer set fee or hourly rate

■■ Prefer uncomplicated or set and forget investments.

■■ Place a premium on good communication

■■ More amenable to online communication than other generations, but face to face remains crucial

■■ Social validation is important.

Generation X ■■ Deloitte forecasts that Generations X and Y will hold 84% of all super assets by 20303

■■ Very time poor and thus willing to pay for expertise.


■■ Have an average of 30% of their capital in direct property

■■ Likely to seek specific advice rather than a lifetime plan.

■■ Relatively sceptical of the value of advice, so building trust is essential

■■ Seek time-savers, including tip sheets, checklists and online calculators.

Baby Boomers

■■ Have average SMSF balances around double those of Gen X and Gen Y

■■ Have the highest average contributions of any generation

■■ Increasingly likely to seek advice.


■■ Have an average of 14% of their capital in direct property

■■ Increasingly driven by yield.

■■ 70% prefer face to face meeting

■■ Evenly split between self-directed investors and holistic advice seekers

■■ Important to provide reassurance.

Silent Generation

■■ Have the highest super balances and investable assets of any generation

■■ Suffering from an advice gap on retirement income streams.


■■ Cautious, income focused

■■ Most likely generation to start trading online over the next 12 months.

■■ Actively seek educational materials and discussion

■■ Important to maintain ongoing dialogue

■■ Active online, but higher preference for face to face meetings than any other generation.

7

Generation Y

Confident and optimistic, Gen Ys have packed a wide range of experiences into their comparatively short lives. But while they are strong believers in their own abilities, they are also receptive to receiving financial advice from a trusted source.

Gen Y settles downGeneration Y is coming of age. Born from 1978 onwards, the oldest Gen Ys will turn 33 in 2012. As they grow older, many are preparing to settle down. Our research shows around a third of Gen Y SMSF investors have already married (although 3% have since divorced), and they are the generation most likely to marry (17%), start a family (16%) or get a home loan (25%) over the year ahead. 27% have children at home, while 43% have a mortgage.

But that doesn’t mean Gen Ys have become staid and boring. Among SMSF investors, Gen Ys are also the most likely to change jobs next year (44%), travel overseas (73%), join a gym (38%) — or even go mountain climbing (20%).

Asked to describe their ideal lifestyle, Gen Y SMSF investors are the most likely generation to use words like ‘rewarding’ (49%), ‘fulfilling’ (49%) and ‘exciting’ (46%), and many have

already experienced an enormous amount. 67% have travelled overseas, with 15% living and working offshore for an extended time. 24% have switched careers, while 22% have started a business.

Gen Y is the most highly educated generation of SMSF investors. 49% have a degree, while 14% have earned a postgraduate qualification. As digital natives, they are also the largest users of social networking. More than 90% of Gen Y SMSF investors have used social networking tools, most often to keep in contact with family and friends (70%) or to share opinions (34%). And when it comes to investing, Gen Ys often have strong opinions to share.

Gen Ys are the generation most likely to marry (17%), start a family (16%) or get a home loan (25%) over the year ahead.

Working full time 65%

Working part time 16%

Self-employed 5%

Homemaker 6%

On benefits 2%

Challenging 37%

Busy 37%

Stressful 35%

Enjoyable 27%

Rewarding 23%

Happy 23%

17% Living alone

9% Flatting with friends

30% Couple with no kids

27% Couple with kids at home

9% Own home without mortgage 43% Own home with mortgage

38% Renting

HO

W TH

EY VIEW THEIR LIVESHOME O

W

NERSH

IP

EMPLOYMEN

T

FAM

ILY

Gen Y SMSF investors – a snapshot

8

Gen Y: optimistic about the future

how do SMSF investors feel about the future?

20%

15%

3%

4%

27%

20%

21%

31%

30%

23%

28%

27%

12%

19%

17%

12%

5%

5%

8%

3%

5%

13%

11%

16%

2%

7%

7%

1%

2%

5%

Gen Y

Gen X

Boomer

SilentGeneration

Very excited about the future

I feel good about the future

I am optimistic about the future

I feel okay about the future

I don't think much about the future but feel okay about it

I am concerned about the future

I am very worried about the future

I try not to think about the future

Feel Positive Feel OK Feel Negative

Source: Mood, Life and Money – Macquarie Insights

While confident about many aspects of their lives, Gen Ys are less confident than other generations when it comes to long-term investment decisions.

Fearless and optimistic — but not fulfilledDespite their substantial achievements, it seems that many Gen Y SMSF investors surveyed are not living the lifestyle they imagine for themselves. They are less likely than any other generation to describe their current lives as ‘fulfilling’ (20%), and more likely to say life is ‘mundane’ (12%) or ‘boring’ (11%). But they remain exceptionally positive about their prospects, with 30% saying they are optimistic and 27% saying they feel good about the future.

They are also typically less fearful than other generations, with their greatest fears being finding the time to do the things they want to do, and housing affordability (both 39%). The only aspects of life in which they are more fearful than their elders are rising interest rates (27%), global warming (23%) and keeping up with technology (12%, compared to just 7% for Gen X) — yet another indication of the importance of technology in their lives.

Gen Y SMSF investors were significantly less affected by the GFC than other generations, with only 28% saying that it has had an impact on them, reflecting their comparatively low account balances and longer investment timeframe. Nonetheless, 37% say they have become much more careful with their spending, while 11% have responded to falling markets by starting to invest in shares.

9

The less confident generation – fewer assets, lower incomesUnsurprisingly, Gen Y SMSF investors surveyed, have fewer investable assets than older generations, with 45% having $100,000 or less, including both super and non-super investments — although 19% have more than $500,000 and 7% have more than $1 million.They also typically have lower incomes, with 46% earning less than $60,000 a year.

Around 47% of SMSFs run by Gen Ys have balances of less than $50,000, a level at which the costs of maintaining an SMSF are likely to be several times those of a comparable industry or retail super fund.

While Gen Ys are confident about many aspects of their lives, they are less confident than other generations when it comes to long-term investment decisions. Asked to rate their decision-making abilities on a scale of one (poor) to 10 (excellent), 93% of Gen Y SMSF investors rated themselves at five or more on decisions about their everyday finances, but only 79% gave themselves a rating of five or above on decisions to ensure they would have enough money to retire.

Gen Y: confident about life decisions, less confident about investing

how confident are you at decision-making? (average ratings out of 10)

People decisions – for example getting married and having kids

Career decisions – for example changing careers

Property decisions – such as buy or renovate a house

Investment decisions – such as to invest in shares or set up an SMSF

Gen X

Gen Y

Baby Boomers

1 2 3 4 5 6 7 8 9 10

Source: Mood, Life and Money – Macquarie Insights. Scale of 1 to 10, where 10 is the highest level of confidence.

A focus on equitiesAn analysis of Macquarie Wrap clients shows that Gen Y SMSF investors had the highest proportion of their portfolios in equities, with an allocation of 48% in April 2012.

Macquarie CMA data shows that Gen Y SMSF investors have the lowest cash hub balances among the generations, with an average balance of $56,521.

According to Investment Trends, Gen Y investors have been the most active over the last 12 months in changing the asset allocation of their funds, with 32% of Gen Ys saying they have changed their asset mix by 50% or more. They also claimed to have achieved the highest investment returns over the last 12 months of any generation, with an average of 9% (self-assessed).

Looking ahead, Investment Trends found that Gen Ys were most likely to say that capital growth was a priority when selecting investments for their SMSF (61%). Compared to the other generations, they were significantly less likely to nominate franked dividends or income as priorities, but much more likely to give priority to investments that are set and forget (23%), simple to understand (21%) or low risk (23%).

Gen Y Macquarie Wrap clients: a focus on equities

0%10% 20% 30% 40% 50% 60% 70% 80% 90%

100%

2006 2007 2008 2009 2010 2011 2012

Cash Funds Equities

Source: Macquarie Investment Management Limited

10

Deciding for themselvesOur research shows Gen Ys are least likely among the generations to seek financial advice, with just 20% of Gen Y SMSF investors currently having a financial adviser. Similarly, only 18% plan to consult an adviser next year. Asked who makes the investment decisions for their SMSFs, around 67% of Gen Ys said they make all decisions themselves.

At the same time, Gen Ys demonstrated a higher level of trust towards potential advisers than other generations. Not only would they trust a financial adviser (52%) or an industry professional (56%), but they were also the generation most likely to trust a family member (58%), partner (53%) or parent (54%). And while still relatively unlikely to seek advice in practice, they were also more likely than other generations to agree in principle that it is worth paying for advice on crucial decisions, including investing in property (46%), investing in the sharemarket (37%) and creating an investment portfolio (37%).

According to Investment Trends, Gen Ys were also more likely than other generations to say that good communication (31%) was an important quality in an adviser, along with experience (27%), a strong track record (21%) and access to investments (21%).

Deloitte forecasts that Generations X and Y will hold 84% of all super assets by 2030.3

Receptive to adviceThe business case for targeting Gen Y investors is straightforward. While Gen Ys currently have comparatively low super balances, Deloitte forecasts that Generations X and Y will hold 84% of all super assets by 20303 . And while Gen Y investors are the least likely generation to seek advice today, attitudinal research suggests that they have an unusually open mind to receiving advice and exploring new ways of managing their money in the future.

In particular, they are receptive to any advice that would help them break into a property market which many feel is out of reach.

Gen Ys place a premium on good communication, both with their advisers and with each other.

Remuneration and product options

The concept of fee for advice is potentially very powerful with this cohort, with 50% of Gen Y SMSF investors we spoke to saying they would prefer to pay a set fee or an hourly rate for advice.

Our research also suggests that Gen Ys typically prefer uncomplicated investment options. That can be challenging for advisers seeking to interest them in higher growth products involving some level of complexity and risk. For advisers, it’s important to make the case in detail, explaining why a particular investment option is suitable for them and their longer investment timeframe.

communicating with Gen Y

Gen Ys place a premium on good communication, both with their advisers and with each other. They combine a hunger for knowledge with an enthusiasm for sharing information, often online. For that reason, social media and the web can be useful tools for engaging their interest, although it is essential to engender trust by providing genuinely useful information, not marketing material.

Because Gen Ys are less confident in their financial decision-making than other generations, and more prone to seek affirmation and advice from others, social validation is particularly important. By providing case studies, referrals and video testimonials, or by presenting to a group of Gen Y investors in person, advisers can help to reassure potential clients that their peers are also making the same decision.

While online media is more effective with Gen Y than with any other generation, face to face contact remains crucial. Asked how they would like to receive advice, every generation demonstrated a strong preference for face to face meetings with an expert, ranging from 64% of Gen Ys to 74% of Silent Generation SMSF investors. Nonetheless, Gen Ys are the most likely generation to favour using an online form to provide crucial details (30%), or dealing with an expert by email (23%) or phone (20%).

11

Generation Y: more likely to favour online communication

how do SMSF investors prefer to receive advice?

Gen Y Gen X Baby Boomers Silent Generation

0% 10% 20% 30% 40% 50% 60% 70% 80%

Face to face meeting with an expert

A written recommendation

Calculators that allow me to testscenarios

A formal statement of advice

An online form for providing yourdetails and what you want to achieve

Deal with an expert via email

Information provided online

A transcript of your discussion

Phone call with an expert


our five tips for communicating with Gen Y

1. Be authentic

2. Listen

3. Get straight to the point, but provide specific detail

4. Provide social validation in the form of referrals or case studies

5. Treat social media as a communication channel, not a marketing channel

12

Generation X

Income rich and time poor, Gen X investors find it hard to give their finances the attention they deserve. While many are distrustful of advice, they are still ready to welcome anyone who can simplify their overcommitted lives.

Time poor but happyNow in their mid 30s to late 40s, Gen Xs are going through the busiest period of their lives. Our research shows more than two thirds of Gen X SMSF investors have children living at home, typically of school age or younger, and 88% are in the workforce. As well as raising children and paying off a mortgage (50%), they are getting ready to pay school fees (21%), buy investment properties (52%) and renovate their homes (54%), either now or in the future. Around 47% of Gen X SMSF investors run their own business.

Little wonder that the word they most often use to describe their lives is ‘busy’ (46%), closely followed by ‘challenging’ (40%) and ‘stressful’ (37%). Yet they also say life is ‘enjoyable’ (40%) and ‘happy’ (32%), suggesting that there are rewards to be had amid the frantic activity.

The typical Gen X SMSF investor is well educated, with an undergraduate (36%) or postgraduate (17%) degree. Like Gen Y they often use social media as a convenient way to keep in contact with friends and family (56%) and stay in touch with the news (23%), although they visit a smaller range of social media sites than both Gen Ys and the Baby Boomers — perhaps unsurprisingly, given their busy lives.

Above all, Gen Xs are time poor, making speed and efficiency an essential part of their investment decision-making.



Self-employed 11%

Homemaker 7%

On benefits 4%

Student 1%

Busy 46%

Challenging 40%

Enjoyable 40%

Stressful 37%

Happy 32%

11% Living alone

7% Single parent


18% With preschoolers

30% With school age kids

69% With kids at home

50% Own home with mortgage

31% Own home without mortgage

18% Renting

HO

W TH


W

NERSH

IP

EMPLOYMEN

T

FAM

ILY

Gen X SMSF investors – a snapshot

13

A focus on familyAsked to describe their ideal life, Gen X SMSF investors are likely to use words like ‘enjoyable’ (59%), ‘happy’ (58%), ‘comfortable’ (48%) and ‘relaxed’ (50%). So, while relatively content with their busy lives today, they would seem to aspire to a more laid back lifestyle in the future. Asked to rate their overall feeling towards life on a scale between one (unhappy) and 10 (very happy), 69% rated their lives at seven or above, making them the happiest cohort after the Silent Generation.

Asked what they most feared, Gen X SMSF investors revealed a distinct focus on family and finances, nominating the safety of their children (45%) and the type of society their kids will live in (40%) as significant concerns, along with having enough money in retirement (42%) and having enough for a rainy day (40%).

Nonetheless, they remain largely positive, with 23% describing themselves as optimistic and 20% saying they feel good about the future.

The GFC had a significant but not overwhelming impact on Gen X SMSF investors, reflecting their relatively long investment timeframe and the healthy contributions generated during their peak earning years. While most say they were largely unaffected, a third say the GFC has had some impact, and another 11% believe it has had a major negative impact. 38% also say that their superannuation has lost significant value, while 25% say that their non-super investments have suffered.

Like other generations, they have trimmed their spending in response, with 37% spending more carefully. 16% have also moved funds from growth investments into cash.

For Gen Xs, financial decision-making is often driven by the needs of their families, particularly their children.

Accumulation mode – high incomes and a growing asset baseAlthough they typically have more assets than their younger peers, Gen X SMSF investors are still very much in accumulation mode, with 46% surveyed having total investable assets of less than $250,000. However, they have among the highest incomes of all the generations, with 52% earning more than $100,000 a year, and more than a quarter on a combined income of $150,000 or more.

Perhaps surprisingly, Investment Trends data shows that Gen X SMSF investors on average have a lower fund balance than their Gen Y counterparts, although they have far less funds with a very low balance. More than half have a balance between $100,000 and $500,000. In part, this data may simply reflect the skew towards very high balances among the considerably smaller population of Gen Y SMSF investors.

For Gen Xs, financial decision-making is often driven by the needs of their families, particularly their children. Asked how they plan for the future, 29% of Gen X SMSF investors said they plan for the future of their children, while 32% discuss their future life goals with their families. Many also save as much as they can (40%) and budget for specific goals (35%). Among the generations, Gen X SMSF investors are also the most likely to get life insurance next year (16%), reflecting a strong desire to provide for their families, no matter what may happen down the track.

Like other generations, Gen Xs want to be seen as confident in their financial decision-making. They improve their confidence by researching topics on the internet (56%), reading a lot about them (53%) and talking to someone who has done it before (51%). But while more confident than Gen Ys, they are still less so than their older peers.

14

Gen X: planning for their families

how do you plan for the future?

0% 10% 20% 30% 40% 50% 60%

I have a written plan of my future goals

I don't plan for the future

I discuss my life goals with my friends and colleagues

I plan for the future of my children

I discuss my life goals with trusted advisers

I spend a lot of time planning for my financial security

I spend a lot of time thinking about the future

I take life as it comes

I discuss my future life goals with my family

I budget to do specific things in the future

I save as much as I can

Gen Y Gen X Baby Boomers Silent Generation


Gen X SMSF investors held an average of 30% of their capital in direct property, giving them significantly more diversified portfolios than the other generations.

15

Diversifying into propertyAn analysis of Macquarie Wrap clients reveals that advised Gen X SMSF investors have followed other investors in boosting their allocation to direct equities over the last six years, from 34% in January 2006 to a peak of 48% in March 2011, before gradually winding back to 44% in April 2012.

Meanwhile, Investment Trends’ broader survey of both advised and self-directed Gen X SMSF investors shows that they had lower allocations to equities and cash than both the Baby Boomers and the Silent Generation in April 2012. Instead, they held an average of 30% of their capital in direct property, giving them significantly more diversified portfolios than the other generations.

With relatively illiquid portfolios, they were also less likely to have substantially changed their SMSF’s asset allocation over the 12 months to April 2012, with 68% saying they had made no changes. But among those who had changed their investment mix, Gen Xs were most likely to say they had moved to a more aggressive stance (18%) or changed their mix to focus on growth (14%). 18% have a positive outlook on Australian shares.

Looking ahead, Investment Trends found that the top three investment priorities for Gen X SMSF investors over the next 12 months are direct blue chip shares, term deposits and small cap shares. But they are also more likely than other generations to invest in international shares, investment properties and instalment warrants.

Investment Trends also observed that around 10% of Gen X SMSF investors intend to use capital protected products within the next 12 months. Their main motivation appears to be to gain low-risk access to a higher level of gearing. Among Gen X investors who intend to use capital protected products, 32% say it’s a good way to access high growth investments, and 29% say they are motivated by the gearing within capital protected products.

Gen X: diversification through property

Roughly how much do you have invested in each type of asset?

Direct shares

Cash and cash products

Listed hybrid securities/convertible notes

Investment property

Commercial property

Managed funds

All other investments

46

29

3536

7

41

28

29

5

7

8

34

22

1

16

14

56

0

10

20

30

40

50

60

70

80

90

100

%

Silent GenerationBaby BoomersGen X

Source: Investment Trends, April 2012 Self Managed Super Fund: Investor Report, additional analysis commissioned by Macquarie.

Among the generations, Gen X SMSF investors are the least disposed to consult a financial adviser.

16

Scepticism towards adviceAmong the generations, the Gen X SMSF investors we spoke to are the least disposed to consult a financial adviser. While 24% currently have an adviser, 29% say they previously had an adviser but no longer do so. Asked who they would trust to provide advice, they were as likely to consult their partner as a financial adviser (both 39%), preferring an accountant (49%) or a professional investor (57%). According to Investment Trends, they were also most likely to say that a lack of trust was a key obstacle to consulting a professional adviser (20%), with around 32% also saying that they lacked confidence in advisers’ expertise.

When Investment Trends asked Gen X SMSF investors what they expected from a financial adviser, 42% said honesty was a key quality, followed by integrity (34%), with both qualities valued more highly than expertise, good investment selection and experience.

However, there are circumstances in which Gen Xs will seek advice. When we asked what would drive them to consult an adviser, most said they would seek advice on decisions with legal implications (64%), decisions that would cost a lot of money (52%) and situations where they wanted to be more confident in their decision-making (47%).

Buying timeWe believe for an adviser, the business case for attracting Gen X investors is even more compelling than for Gen Ys. Like Gen Ys, they are forecast to hold an increasingly large proportion of Australia’s super assets over the next few decades, at a time when the Baby Boomers will be gradually drawing down their savings. But unlike Gen Ys, they are already nearing their peak earning years, generating a large income stream and accumulating assets in increasingly complex portfolios. Recently, some Gen X SMSF investors have also demonstrated an appetite for more complex and sophisticated investment strategies, including gearing.

Our research shows Gen Xs are also prime prospects for advice because they are extremely time poor. As a result, they may be willing to pay for expertise if it helps to relieve them from the constant time pressure that most feel. The key is to overcome their ingrained distrust of professional advisers and instil confidence in both the value of financial advice and in their own financial decision-making, particularly when it comes to creating a more secure future for their families.


While Gen Xs are prepared to pay for advice they value, they are more likely to pay for a specific piece of advice, rather than a complete financial plan. Typically, they are looking for someone who can deal with a specific issue at a particular point in time, rather than a lifetime planner.

And although all of the generations find the fee for advice model appealing, Gen Xs are potentially less focused on costs, both because they have above average incomes, and because they appreciate the value of speed and convenience. In other words, they are willing to buy extra time in their busy lives.

39% of Gen X SMSF investors surveyed say they would prefer to pay a set fee or an hourly rate, while 33% say that their preferred payment method would depend on the type of advice they were receiving.

communicating with Gen X

Gen Xs want their communications to be brief, clear and straight to the point. Like Gen Y they are eager to learn, but through concise instructional material, not long educational pieces. They are also active online, but they use the internet and social media as a time-saver, rather than as a forum for discussion. For example, Gen X SMSF investors are the most likely to favour online calculators that let them test scenarios quickly and easily (42%). If you can provide clear answers to specific questions, you can engage their interest.

our five tips for communicating with Gen X

1. Instil trust

2. Focus on the family

3. Be active in the community

4. Offer specialist advice for a fixed fee

5. Provide checklists and other time savers

17

Baby Boomers

For the Baby Boomers, reality has started to bite. Hit hard by the GFC and with retirement looming, many worry that they haven’t saved enough. Now they are scrambling to catch up.

Slowing down, but still stressedThe Baby Boomers are the generation that made its own rules, reshaping the world in its mould. Now, with the oldest Boomers turning 65 in 2012, life is starting to slow down.

Among Boomer SMSF investors we spoke to, only 40% work full time, and 12% have already retired. 60% own their own houses, while around one in four are still paying off the mortgage. Their children have largely left home, with just 24% living with teenagers and another 3% of late starters or second families living with school age children. Yet despite all this, they are as likely to describe their lives as ‘busy’ (42%) and ‘stressful’ (30%) as they are to use words like ‘comfortable’ (37%) and ‘enjoyable’ (32%).

Certainly the Boomers remain very active. They have already led full lives, with many having travelled overseas (71%), bought a house, married and had children (all 82%), renovated a home (57%) or started a business (46%). But they are still the most

likely generation to renovate their houses next year (45%) and the second most likely to travel (57%). They are also starting to look after their aged parents, with 39% having already provided care and another 19% expecting to do so in the future.

But their active lives are not the only reason Boomers are likely to be stressed. Hit hard by the GFC and with retirement looming, many have had to delay the retirement they had been looking forward to, staying in jobs they’d prefer to leave.

The typical Boomer SMSF investor is reasonably well educated, with 40% having been to university and another third holding a trade or technical qualification. They are also active online, with 65% using some form of social networking tool. Along with the Silent Generation, they are the most likely cohort to say they spend time on the internet researching a topic before reaching a decision (62%).



Self-employed 15%

Homemaker 2%

On benefits 5%

Retired 12%

Busy 42%

Comfortable 37%

Enjoyable 32%

Stressful 30%

Challenging 29%

14% Living alone

4% Single parent

3% With school age kids

24% With teenagers


or no kids at home



11% Rent

HO

W TH


W

NERSH

IP

EMPLOYMEN

T

FAM

ILY

Boomer SMSF investors – a snapshot

18

Along with the Silent Generation, Baby Boomers are most likely to say they spend time on the internet researching a topic before reaching a decision (62%).

Ready to relax — but not yetAfter spending a lifetime challenging society and themselves, the Boomers seem more than ready to relax. Asked to describe their ideal life, Boomer SMSF investors are most likely to say that it would be ‘happy’ (65%), ‘comfortable’ (63%), ‘enjoyable’ (63%) and ‘relaxed’ (52%). Only one in four prefer life to be ‘exciting’.

That means there is a distinct mismatch between the life many Boomers are leading (busy and stressful) and their ideal (happy and comfortable). And while relatively content with their current lives, they are perhaps less happy than might be expected given their situation. Asked to rate their overall feeling towards life on a scale from one (unhappy) to 10 (very happy), 68% rated their lives at seven or above, making them slightly less happy than their over-stretched Gen X peers.

11% of Boomers are concerned or very worried, while 5% say they try not to think about the future.

So why the discontent? One reason may be their fears for the future. Perhaps surprisingly for a generation that has been notable for its confidence, in many aspects of their financial lives the Boomers are the most fearful generation. They are by far the most likely to say they fear not having enough money in retirement (61%), that their super will not be enough (46%), or that they will not have enough for a rainy day (44%). As they see more effects of constant policy changes, they are also second only to the Silent Generation in fearing government decisions (47%).

So, while some Boomers are optimistic (28%) or feel good about their prospects (21%), others describe their feelings about the future as only ‘OK’ (23%), while another 11% are concerned or very worried. Most tellingly, 5% say they try not to think about the future, by far the largest proportion of any generation.

Asked how they plan for the future, the Boomers are also the most likely generation to say that they save as much as they can (54%) and spend a lot of time planning for their financial security (30%).

One reason for their gloom is the GFC. 63% of Boomer SMSF investors surveyed were affected by the GFC, 20% badly. 59% say that their super has lost significant value. As a result, 30% have put off their retirement plans, while others have delayed travel (24%), put off other big decisions (21%) or stayed in a job despite wanting to change (18%).

Baby Boomers: will the money run out?

What are your biggest fears?

Gen Y

34

34

38

39

39

0 10 20 30 40 50 60 70

Having enough for a rainy day

The future of Australia

The type of society your kids will live in

Finding time to do the things you want to do

Housing affordability

%

Gen X

39

40

40

42

45

0 10 20 30 40 50 60 70

Finding time to do thethings you want to do

The type of societyyour kids will live in

Having enoughfor a rainy day

The safety ofyour children

Having enoughin your retirement

%

Baby Boomers

0 10 20 30 40 50 60 70 %

38

44

46

47

61


Having enoughfor a rainy day

Superannuationnot being sufficient

for retirement

The decisions thegovernment makes


Silent Generation

35

37

40

42

64


World disasters


Terrorism

The decisions thegovernment makes

0 10 20 30 40 50 60 70 %


19

Boomers: becoming more defensive

Top 5 reasons for changes in asset allocation

Silent Generation Baby BoomersGen X

0% 10% 20% 30% 40% 50% 60%

Adopted a more defensive stance

Intentionally increased cash allocation

Negative outlook on Australian shares

Sold assets for cash

Adopted a more aggressive stance

Source: Investment Trends, April 2012 Self Managed Super Fund: Investor Report, additional analysis commissioned by Macquarie. Note – insufficient data to show Gen Y trends.

Many are wealthy — but some are less prepared While many Boomer SMSF investors have accumulated considerable portfolios, our research has shown that others have been less fortunate. Although 30% have $750,000 or more in investable assets, a quarter have less than $250,000 and 16% less than $100,000. Similarly, while Investment Trends data suggests SMSFs run by Boomers typically have balances averaging more than $1 million, two-fifths have less than $500,000 in super savings, the level identified by ASFA as the minimum for a couple to enjoy a comfortable lifestyle in retirement.

At the same time, many Boomers are still in their peak earning years. 57% per cent of Boomer households surveyed have an income of more than $100,000 a year, and 23% earn $150,000 or more.

After the Silent Generation, the Boomers are the most confident when it comes to financial decision-making. Asked to rate their decision-making abilities on a scale of one to 10, 89% gave themselves a mark of seven or more for managing their day-to-day finances, although that figure falls to 51% when it comes to decisions that determine whether they will have enough to retire.

Becoming more defensiveData from Macquarie Wrap clients suggests that advised Boomer SMSF investors have increased their allocation to both shares (46%) and cash (12%) over the last few years, while reducing managed fund holdings to 42% of their portfolios.

Surveying a broader population of both advised and self-directed Boomer SMSF investors, Investment Trends found they have among the highest allocations to direct equities — second only to the Silent Generation at 41%. At the same time, they are currently holding around 28% of their assets in cash, with around 28% having deliberately increased their cash allocation.

After Gen Y, the Boomers were most likely to have made significant changes to their asset allocation in the last 12 months, with 40% having changed at least 10% of the fund. Many moved to adopt a more defensive stance (44%), with 30% motivated by a negative outlook on Australian shares.

Nonetheless, Investment Trends found that Boomers are still largely focused on capital growth, with 60% saying it was their main priority for investment selection, although 50% also seek out franked dividends and 33% focus on capital preservation.

20

Increasingly seeking adviceAs they rapidly approach retirement, Boomers have been increasingly seeking financial advice. According to our research 44% of Boomer SMSF investors currently have an adviser, and 31% say they are likely to consult an adviser over the next 12 months. They also demonstrate the highest level of trust in financial advisers among the generations (49%), although they are still more likely to trust an accountant (56%) or a professional expert in the field (57%).

According to Investment Trends, Boomers are the most likely generation to say that costs or a lack of added value are barriers to seeking advice (36%), and least likely to say they believe they can manage their own financial affairs (33%). Asked what they expected from a financial adviser, Boomer SMSF investors were most likely to nominate honesty (37%), expertise (29%) and integrity (28%).

Despite their sensitivity to costs, Boomers strongly believe that there are situations where advice is worth paying for. Our attitudinal research found they were the generation most likely to say that it was worth paying for advice on planning for retirement (42%) or combining your finances with your partner for maximum value (28%). They also place a high value on advice around tax effectiveness (50%) and setting up an SMSF (52%).

For advice practices servicing SMSFs, Baby Boomers are likely to be the most important client segment over the next decade.

Looking for directionFor advice practices servicing SMSFs, our analysis shows that Baby Boomers are likely to be the most important client segment over the next decade, as their fund balances peak before they enter retirement. According to Investment Trends, Boomer SMSF investors had the highest level of super contributions among the generations over the 12 months to April 2012, averaging $53,000 across all members of the fund. They also plan to make a higher level of contributions over the next 12 months than other generations, averaging $40,000, despite the reduced concessional contributions cap for over 50s.

And while some Boomers have had negative experiences with advisers in the past, many are highly disposed to seek advice, confronted as they are with the prospect of retiring with insufficient funds.

After four years of volatile markets and considerable uncertainty, Boomer investors are looking for direction. Most have seen their super savings eroded over the past few years, and while they have responded by moving to a more defensive asset mix, many feel that they should be doing more. That makes them receptive to new investment ideas and product options that promise higher returns than cash, while keeping risk under control.

Baby Boomers: boosting their super

Average contributions, 12 months to April 2012

Average intended contributions, next 12 months

0

10

20

30

40

50

60

Gen Y

$ th

ous

and

s

Gen X Baby Boomers

Slient Generation


21


Like other generations, our research demonstrates Baby Boomers show a strong preference for fee for advice, with 46% preferring a set fee or hourly rate. As noted earlier, they are also more likely than other generations to say that cost is a barrier to seeking advice, making it important to demonstrate value.

Currently, Baby Boomers have a high allocation to SMSF property (14%), second to Gen X (30%). With clearer rules around ownership of property within their fund, it is likely to become an increasingly important asset class for this generation, which has demonstrated a strong emotional attachment to bricks and mortar. At the same time, they are likely to become less open to gearing as they grow older, making geared property solutions less attractive. And while currently focused on capital growth, they are likely to become increasingly driven by yield.

communicating with the Baby Boomers

While Baby Boomers are active online, particularly when researching investment options, they very strongly favour receiving advice in person, with 70% saying they prefer a face to face meeting with an expert.

As a generation, they are evenly split between those who are open to holistic advice, and self-directed investors seeking limited advice on specific issues, so advisers need to be ready to cater to both styles of interaction.

Above all, it’s important to be sensitive to their fears about the future, while respecting their experience in the past, even if they haven’t yet achieved the financial success they’re looking for.

our five tips for communicating with Baby Boomers

1. Respect their experience

2. Be sensitive to their fears

3. Offer practical solutions to help them through the next five years

4. Provide detailed product information, particularly on risks

5. Consider using face-to-face seminars as a communication and education tool

22

The Silent Generation

Relaxed and comfortable, members of the Silent Generation are making the most of their new found leisure. But that doesn’t mean they’ve stopped actively managing their finances.

Relaxed and comfortableAged 66 and up, the Silent Generation is the most content of all the generations. Asked to describe their lives, most Silent Generation SMSF investors use words like ‘comfortable’ (67%), ‘enjoyable’ (54%) and ‘relaxed’ (38%). And they are the generation least likely to say their lives are ‘scary’ (3%), ‘mundane’ (5%), ‘boring’ or ‘depressing’ (both 6%).

This is a generation for whom life’s stresses and worries are largely a thing of the past. Only 5% of Silent Generation SMSF investors surveyed are working full time, although another 12% are working part time and 8% are self-employed. But three quarters have already retired (including some still doing a little work on the side) and another 11% plan to retire soon.

More than three quarters of Silent Generation SMSF investors have paid off their homes, and a similar number have no children living at home. While a few say they are likely to move to the country or the coast (4%), most are staying put — at least until they are forced to move into aged care, which 36% say is likely to happen in the future.

Instead, they are busy focusing on the good life. 89% have travelled overseas at some stage in their lives — more than any other generation — and 40% say they will do so again in the future. 30% plan to renovate. But the rest seem content to simply sit back and relax. Asked how they plan for the future, 39% say they take life as it comes.

However, that doesn’t mean they have stopped taking an active interest in their super. 32% cent plan to make new investments in shares or other assets in future. Even more strikingly, Silent Generation SMSF investors are overwhelmingly the most likely generation to use online trading next year, with 41% saying they’ll trade online.

In fact, the Silent Generation are surprisingly active users of online media, including social media. While fewer use social networking tools than other generations, 50% are on Facebook, and they are the generation most likely to consult TripAdvisor before taking a trip (20%). Along with the Boomers, they are also the generation most likely to spend time on the internet learning about a topic before making a decision (62%). For the Silent Generation, free time is something in plentiful supply.



Self-employed 8%

Homemaker 6%

Retired 70%

Comfortable 67%

Enjoyable 54%

Relaxed 38%

Rewarding 33%

Busy 30%

11% Living alone

13% With teenagers


or no kids at home



14% Rent

HO

W TH


W

NERSH

IP

EMPLOYMEN

T

FAM

ILY

Silent Generation SMSF investors – a snapshot

23

Silent Generation SMSF investors are overwhelmingly the most likely generation to use online trading next year, with 41% saying they’ll trade online.

Worried for the worldAmong the generations, Silent Generation SMSF investors come closest to living their ideal lifestyle. Asked to describe the life they’d like to lead, they say it would be ‘comfortable’ (82%), ‘enjoyable’ (64%) and ‘relaxed’ (58%) — the same words many use to describe their lives today. Ask them how they feel about their lives and their contentment shines through, with 68% rating their lives eight or more out of 10, two-thirds more than any other generation (although those super-confident Gen Ys are still most likely to score their lives at 10 out of 10).

Where the Boomers are worried about their own finances, Silent Generation SMSF investors we spoke to are much more concerned about the state of the nation and the globe, with their top fears including terrorism (42%), the future of Australia (40%) and world disasters (37%). The exception is their greatest fear of all, the effects of government decision-making (64%) — perhaps understandably, given the potentially disastrous impact of adverse policy changes on their financial health.

Asked how they feel about the future, Silent Generation SMSF investors are more polarised than their younger peers, perhaps reflecting their unique combination of deep personal contentment and broad concern for society in general. They are the generation most likely to say that they feel good about the future (31%) and that they are concerned (16%) or very worried (7%, equal to the Baby Boomers). But on the whole they are more optimistic than not.

Their relative lack of financial worries is all the more striking given that they were more strongly affected by the GFC than any other generation, with 44% saying it had some impact, and 21% saying it had a major negative impact. But while 56% say their super lost significant value, they are least likely among the generations to say that they have become more careful with their spending (36%), although 21% have moved funds into cash investments. They are also by far the most likely generation to say that the GFC made them re-evaluate who they should trust (24%).

Their greatest fear is the effect of government decision making (64%) — perhaps understandably, given the potentially disastrous impact of adverse policy changes on their financial health.

Current life descriptions: the Silent Generation are relaxed and comfortable

Gen Y

37

37

35

27

23

23

0 10 20 30 40 50 60 70 80

Challenging

Busy

Stressful

Enjoyable

Rewarding

Happy

%

Gen X

Busy

Challenging

Enjoyable

Stressful

Happy

46

40

40

37

32

0 % 10 20 30 40 50 60 70 80

Baby Boomers

42

37

32

30

29

0 % 10 20 30 40 50 60 70 80

Busy

Comfortable

Enjoyable

Stressful

Challenging

Silent Generation

67

54

38

33

30

0 % 10 20 30 40 50 60 70 80

Comfortable

Enjoyable

Relaxed

Rewarding

Busy


24

The millionaire generation – high assets, lower incomesOne possible explanation for the Silent Generation’s comparative serenity, despite the effects of the GFC, is their comfortably large asset base, by far the largest of any generation. 54% of Silent Generation SMSF investors we surveyed have investable assets of $500,000 or more, and 37% are millionaires or multi-millionaires. Data from Investment Trends also shows that they have by far the largest SMSF balances of any generation, with an average of $1.2 million per fund.

Unsurprisingly, given that many are in the draw-down phase, Silent Generation SMSF investors in our research have the lowest household incomes of the generations, with 49% on less than $80,000 a year — although around a third receive more than $100,000, a comparatively generous retirement income.

As we noted earlier, Silent Generation SMSF investors are surprisingly relaxed when it comes to planning for the future, with 39% taking life as it comes. But they also tend to budget for specific items (38%) and discuss their life goals with trusted advisers (27%).

Like other generations, they want to be perceived as confident decision-makers (52%), although they would also like to be seen as sensible (48%), knowledgeable (48%), intelligent (44%) and mature (43%). And it seems that Silent Generation SMSF investors are indeed as confident as they would wish to appear. Asked how confident they were in their ability to make decisions about shares and other investments, 56% rated themselves at nine or 10 out of 10, and the rest rated themselves six or above, an extraordinarily high result. When it comes to investing, nothing breeds confidence like success.

54% of Silent Generation SMSF investors we surveyed have investable assets of $500,000 or more, and 37% are millionaires or multi-millionaires.

25

The Silent Generation: actively managing their spending

Gen Y

34

35

39

53

60

0 10 20 30 40 50 60 70 80

I look for ways to increase my salary and/or earn other income

I control my budget and am careful with everything I spend

Use a credit card and try to pay it off every month

Put as much as I can into a savings account

Check my bank balance frequently

%

Gen X

36

38

43

43

67

Use a spreadsheet to monitor spending





0% 10 20 30 40 50 60 70 80

Baby Boomers



Put as much as I can into a savings account



0 % 10 20 30 40 50 60 70 80

33

42

43

51

69

Silent Generation

Use a spreadsheet to monitor spending


I don’t have a written budget but do have a very good ideaof my bills every month



0 % 10 20 30 40 50 60 70 80 90 100

19

40

43

61

86


26

A preference for equitiesAn analysis of Macquarie Wrap clients shows that Silent Generation SMSF investors have gradually increased their allocation to direct equities, from 29% in January 2006 to 43% in April 2012. At the same time this group of investors, all of whom are advised, have reduced their holdings of managed funds to 45% of their portfolios.

Investment Trends’ broader survey of both advised and self-directed investors shows a similar trend. Remarkably, their survey found that Silent Generation SMSF investors have a higher allocation to direct equities than either the Baby Boomers or Gen X, at 46%, although they also had 29% of their assets in cash and just 6% in managed funds. Asked what might stop them from investing in managed funds, they were the most likely generation to cite poor performance (36%), a gap between predicted and actual returns (32%) and the perception that advisers only recommend funds because they belong to the fund manager’s dealer group (23%), although most also mentioned high fees as a barrier (42%).

Despite their relatively high allocation to equities, Silent Generation SMSF investors have reacted promptly to recent market volatility. While Investment Trends found that only 40% of Silent Generation SMSF investors made significant changes to their asset mix over the last 12 months, around half of that number adopted a more defensive stance, while a third intentionally increased their cash allocation.

Silent Generation SMSF investors were also the most likely to say that franked dividends are a top priority when selecting investments (62%), along with capital preservation (36%) and high income (33%). But 49% also say capital growth is important.

Looking to the future, Investment Trends found that the top three investments for Silent Generation SMSF investors over the next 12 months are direct blue chip shares (58%), term deposits (35%) and high yielding shares (34%). They are also more likely than other generations to invest in hybrids (13%) and fixed interest (8%).

Of all the generations, Silent Generation SMSF investors are by far the most likely to seek advice.

Silent Generation Macquarie Wrap clients: an increasing allocation to equities

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2007 2008 2009 2010 2011 2012

Cash Funds Equities

Source: Macquarie Investment Management Limited

Highly likely to seek advice on retirement planningOur research shows of all the generations, Silent Generation SMSF investors are by far the most likely to seek advice, with 55% saying they currently have an adviser. Asked who they would trust to provide advice, almost half said they would trust a financial adviser (46%), although as a group they were slightly more likely to trust a professional investor or accountant (both 49%) or even their partner (48%).

Asked when it’s worth paying for financial advice, Silent Generation SMSF investors were also most likely among the generations to say they would pay for help achieving tax effectiveness (57%), setting up an SMSF (52%) or structuring their finances (44%). 63% say they have sought advice on planning for retirement.

27

Silent Generation: advice is worth paying for

Gen Y

How to plan forretirement

%

How to create aninvestment portfolio

How to invest in theshare market

How to achievetax effectiveness

How to investin property 46

45

37

37

0 10 20 30 40 50 60

35

Gen X

How to structureyour finances



How to set up a selfmanaged super fund

How to achievetax effectiveness

0 10 20 30 40 50 60%

47

41

33

32

29

Baby Boomers


%




How to achievetax effectiveness 50

49

42

35

34

0 10 20 30 40 50 60

Silent Generation


How to planfor retirement



How to achievetax effectiveness 57

52

44

27

21

0 % 10 20 30 40 50 60


We believe the Silent Generation will remain an important part of most advisers’ client base for some time to come. Not only do they have higher super balances and more assets to manage than the other generations, they also currently have the greatest tendency to seek advice and a demonstrated willingness to pay for it.

Our attitudinal research also suggests that many Silent Generation SMSF investors are suffering from a significant advice gap when it comes to planning for the draw-down phase of their fund. In an industry focused on accumulation, many feel that the details of managing their finances after retirement are something of a mystery. Advisers who can clearly explain the practicalities of retirement income streams will do well with this segment.


Like other generations, Silent Generation SMSF investors overwhelmingly prefer to pay for advice through a set fee (38%) or an hourly rate (9%), with only a quarter saying they would consider other payment options, depending on the type of advice they received.

Unsurprisingly, this generation is both more cautious and more focused on income than other groups. They prefer tangible investments that they can see, touch or clearly understand, making property potentially appealing. And they also prefer the reassurance of being able to track their investment performance online.

Largely retired, this is a generation with both the time and the inclination to take an active interest in managing their investments. Many start trading online after retirement — and while their level of activity may have fallen recently, their level of interest remains high.

28

communicating with the Silent Generation

Now entirely dependent on their retirement savings for their livelihood, Silent Generation SMSF investors devote the same energy and attention to their investments that other people lavish on their jobs. And where other generations have a network of work contacts to share and assess financial and lifestyle ideas, Silent Generation investors often rely on their advisers for discussion as well as advice. As a result, they are a higher touch segment than many of their younger peers.

For that reason, it’s important to maintain an ongoing dialogue with Silent Generation clients, whether through newsletters, emails, or frequent conversations. Many people underestimate the willingness of this age group to conduct research and communicate online — but they also like to talk face to face, perhaps more than any other generation.

our five tips for communicating with the Silent Generation

1. Maintain an ongoing dialogue

2. Provide education and research

3. Give them an opportunity to actively participate

4. Hold regular face to face meetings

5. Don’t underestimate their financial skills and knowledge or willingness to go online

29

Lifestages of an SMSF

From the decision to set up a fund, to retirement and the drawdown phase, SMSF investors face a variety of challenges — sometimes with very different results.

Stage 1: The investment decisionThe first stage typically starts in an investor’s mid-to-late 40s, with the decision to set up a fund. By then, most investors are approaching their peak earning years and have had an opportunity to accumulate sufficient assets to make a fund viable. But there is a wide degree of variation, with around one fifth of current SMSF investors having set up their fund before they were 30.

42% of current SMSF investors surveyed set up their fund themselves, without taking any advice.

retirement sell your business~

aged care for parents

set up SMSF

get married

31

have kids

33

buy a housestart a business

36

switch careers

37

buy aninvestment property

38

consult a financial adviser

40

61 51

write a will

50 47

divorce

44

home renovations

43


When do people decide to set up an SMSF?

Median age for key life and financial decisions

30

Stage 2: Start upOur research shows a remarkably high proportion of SMSF investors start up their funds without advice. While 28% consulted a financial adviser and a similar proportion relied on their accountant, 42% of current SMSF investors set up their fund themselves, without taking any advice.

Asked how they now feel about their decision to start up an SMSF, 50% of investors say it was one of the best decisions they’ve ever made, while 26% say that it could have been better and 24% say that it was not so good.

According to Investment Trends, the bulk of SMSFs had a balance between $100,000 and $500,000 on start up, with an average across all funds of $350,000 — although almost half of Gen Y investors started their funds with less than $50,000.

Both the Baby Boomers and the Silent Generation find choosing suitable investments particularly challenging.

Do it yourself – how investors went about setting up an SMSF

0% 5% 10% 15% 20% 25% 30%

28

27

24

22

21

20

16

15

14

13Discussed it with other expert(s)

Discussed it with friends or colleagues

Discussed it with my bank

Calculated what it would cost

Compared a few options

Spent a long time thinking about it before doing it

Read a lot about it

Searched the internet

Discussed it with an accountant

Discussed it with a financial adviser


31

Challenges of running a fund

What do SMSF trustees say are the hardest aspects of running their fund?

Gen Y Gen X Baby Boomer Silent Generation

0% 10% 20% 30% 40% 50%

Accounting fees and charges

Finding time to research investments

Keeping track of changes in rules and regulations

Paperwork and administration

Choosing what to invest in

Gen Y struggle with some aspects more than the older generations

0% 5% 10% 15% 20% 25%

All generations Gen Y

Finding the cash to pay taxas it falls due

Understanding different asset types

Moving money from one investment to another

Sticking to the investment strategy


Stage 3: AccumulationWhile many investors set up their funds by themselves, many find the process of running a fund more challenging. According to Investment Trends data, only 15% of SMSF investors say nothing is hard when it comes to managing their SMSF, and 203,000 SMSFs are willing to pay someone to do one or more tasks they currently do themselves. Meanwhile, Australia’s 468,000 SMSFs are already spending more than $1 billion a year on fund administration.

The ‘pain points’ during the accumulation phase vary by generation. Investment Trends has found that the greatest challenge for cash-strapped Gen Ys is paying accounting

fees and charges, while Gen Xs are more troubled by time-consuming paperwork and administration. Meanwhile, both the Boomers and the Silent Generation find choosing suitable investments particularly challenging — an activity which ranks relatively far down the list of concerns for their younger peers.

And while all generations are accumulating assets in this phase, they are doing so at very different rates. Investment Trends notes that average contributions in the year to April 2012 ranged from $19,000 for funds run by Gen Ys to $53,000 for funds belonging to Baby Boomers.

32

Stage 4: RetirementThe bulk of SMSF investors we spoke to plan to retire at 55, 60 or 65, although once again there is a wide degree of variation within and between generations. While there is some correlation between investors’ intended retirement age and either their preservation age or age pension commencement, 55% of Gen Ys and 41% of Gen Xs plan to retire before 60, while 16% of Gen Ys say they will retire before they are 35!

Investors are equally divided on their target income in retirement. Focusing on the three generations who have yet to retire, most think they will be satisfied with an income below $70,000, including 52% of Gen Ys, 55% of Gen Xs and 38% of Baby Boomers. But it also seems that younger investors have higher expectations than their more experienced elders. While 29% of Gen Ys say they will need an income over $100,000, that figure falls to 18% among the Boomers, with Gen Xs in the middle on 24%.

How much is enough?

Target retirement income by generation

13

17

10

39

38

28

19

20

11

4

6

3

9

5

7

0 % 10 20 30 40 50 60 70 80 90 100

Gen Y

Gen X

Boomer

Less than $40,000

$40,000 to under $70,000

$70,000 to under $100,000

$100,000 to under $150,000

More than $150,000



Retiring – 56, 60 and 63 are the sweet spots

Average expected retirement age by generation

GenerationY

GenerationX

SilentGeneration

(actual)

Baby Boomers

55 56 57 58 59 60 61 62 63 64 65

33

How are SMSFs investors transacting?

contributions peak at June 30 still evident

Despite the lowering of contribution caps in recent years, there is still a noticeable peak in deposits each June as SMSF investors rush to make end of year contributions to their super fund.

As would be expected, deposits (mostly contributions and investment income) generally outstrip withdrawals (mostly pension payments and investments) throughout the year.

Similar transacting habits across the generations

An analysis of Macquarie CMA transaction data for each generation reveals some fascinating similarities. It seems the generations do have one thing in common – they all transact in a similar way. The data shows the very hands-on approach taken by many SMSF investors, with most transactions made by funds transfer, rather than automated periodic payments or direct debits. As would be expected, the usage of cheques continues to show a steady decline in recent years.

Seasonality of deposits and withdrawals into SMSF cash hub*

Withdrawals Deposits

$ b

illio

ns

-2 June2007

June2011

June2010

June2009

June2008

0

Simple super2

Key transaction types for SMSF cash hubs*

2007 20122011201020092008

Cheque deposits

General deposits

Transfers out

Periodic payments

Direct debits

$ b

illio

ns

-2

0

2

* Based on Macquarie Cash Management Account and Macquarie Cash Management Trust data, as at the end of each stated month.

Source: Macquarie Bank

34

Conclusion

By focusing on the different decision-making processes of each generation, advisers can build stronger client relationships and prosper in a post-FOFA world.

While the Macquarie SPAA 2012 SMSF Generations Report has uncovered a range of insights about each generation, the overall message is clear: by tailoring your advice model to the different investment styles and decision-making processes of each generation, you can build stronger client relationships over the months and years ahead.

Client relationships are always important, but they will take on added importance over the next 12 months, as we move from voluntary compliance to full implementation of the Future of Financial Advice (FOFA) reforms, including fee for service and the bi-annual opt-in requirement. For that reason, any insights into the drivers behind investor behaviour are especially valuable.

Our hope is that you can use the findings of this report to build and strengthen your practice with targeted offerings for each generation of investors, so your business can grow and prosper in a post-FOFA word.

Macquarie and SPAA look forward to the opportunity to continue supporting you and your clients with more research, insights and investment solutions in the future.

In the meantime, if you have any feedback or comments on this report, we would like to hear from you.

35

Notes

36

Notes

38

How to contact Macquarie 1800 808 508

[email protected]

macquarie.com.au/smsftools

smsf generations report - macquarie bank

Documents